[Relevant document: Seventeenth Report from the Joint Committee on Human Rights, HC 501.]
Order for Second Reading read.
I beg to move, That the Bill be now read a Second time.
Well-targeted regulation ensures essential rights for consumers and workers. It is a mark of a civilised society. It is necessary to protect our environment, and it is needed to tackle market failures and to establish the simple, clear and consistent rules that businesses and public services need to operate successfully. But too much regulation and poorly targeted interventions can lead to unnecessary costs that could hold back UK businesses, charities and public organisations. That is why the Government have developed an ambitious better regulation agenda that aims to eliminate inappropriate regulatory burdens, wherever they exist. I am pleased to report to the House that that is already bearing fruit.
I am glad to hear that the plan is already bearing fruit. Commissioner Verheugen said that over-regulation was costing the European Union some £600 billion a year. How will the Minister reconcile the Bill with the fact the European Communities Act 1972 applies in any event? Will the Bill override the European Communities Act? Will he apply the simple principle of the supremacy of Parliament to ensure that we achieve regulation in the way that the House wishes, and not necessarily follow the European Union?
The hon. Gentleman asks several questions. The Bill will not change the fundamental relationship between the United Kingdom and the European Union, or the way in which that legal regime operates. He will be glad to know that the United Kingdom has led the way in driving an agenda to cut administrative burdens that are caused by European regulations and laws. As I was about to inform hon. Members, our work in the United Kingdom has already delivered some £800 million of reductions in administrative burdens to business.
I serve on the Joint Committee on Statutory Instruments, which considers everything that is drafted. We have a splendid team of professionals and we correct and improve our regulations. However, we are not allowed to do that for European Union regulation. That cannot be right. There must be a mechanism for overruling that, so that we can improve and clarify EU regulations. I am sure that the Minister wants to do that.
I commend the work of the Joint Committee on Statutory Instruments in improving regulations. I can only repeat what I said in response to the hon. Member for Stone (Mr. Cash). The Government have led the way in ensuring that the process of measuring and targeting administrative burdens for reduction, which we have undertaken for the past couple of years in this country, also happens at European level. We know that we need to do more to ensure that Britain retains and improves on its position as a great country in which to do business and invest. Later this summer, we will consult on a radical new system of regulatory budgets, which will set out the cost of new regulation.
I am grateful to the Minister for giving way again—I appreciate that we have covered the territory previously, but we are considering a specific measure. Under clause 4, the Secretary of State can provide for orders to be made for approximately 200 enactments, some of which are enormously important to running the country. Many emanate from the European Union. Subsection (4) provides that
“The Secretary of State may by order… remove any enactment”
from the list. Given the Minister’s answer to my previous question, how can the Secretary of State do that—inconsistently with the European Communities Act—unless the Government include the specific provision, “Notwithstanding the European Communities Act 1972” to reassert this Parliament’s supremacy?
As I said, the Bill does not alter the fundamental relationship between UK law and European law. We recently debated the European treaty at length, and the Bill to enact it. During those proceedings, the relationship between European law and its jurisdiction and UK domestic law was also debated at length. The Bill does not alter the relationship, to which we signed up when we joined the European Union.
As I said, we will consult on a new system of regulatory budgets, which will set out the cost of new regulation that can be introduced in a given period. We will also introduce a rolling limit on the annually recurring costs of new regulation. More immediately, the Bill will make important legislative changes to the UK system of regulatory enforcement.
Part of the background is Sir Philip Hampton’s report on administrative burdens, inspection and enforcement in 2005. It highlighted the difficulties that can follow from the inflexibility and inconsistency of the existing regulatory system. That is not acceptable, either for business or, indeed, for Government, and the Bill helps to address the issues raised by the report by ensuring a regulatory framework in which we regulate only when necessary, and in clear proportion to the risk, rationalise inspection and enforcement arrangements, and focus enforcement resources on businesses that deliberately or consistently flout their regulatory responsibilities.
The Bill will help to strengthen regulatory compliance, maintain appropriate protections for the public, and reduce regulatory burdens for compliant organisations. Part 1 will create in statutory form an expert body—the local better regulation office— with a remit to improve the way in which Government, regulators, and local authorities work together to enforce regulations. Given the important regulatory role of local authorities, that is an important way of ensuring improvements.
To underline the importance of local government, does my hon. Friend agree that four out of five regulatory inspections are carried out at local authority level? I recently met Graham Russell, the chief executive of the new LBRO, whom I know because he is a former head of trading standards in Staffordshire. He expressed confidence in the organisation’s ability to cut through complexity and establish light-touch risk-basked regulation in future. He said that the benefits of the measure would be fewer burdens on responsible businesses, with resources concentrated on tackling rogue traders.
The Minister has been extremely generous in giving way. I know that many Members wish to speak in the debate, so I shall keep my intervention brief. Could he not just have made an edict that regulators should concentrate on companies that are rogue traders? He did not need to set an office to do that.
Given what my hon. Friend has just said about the membership of the new LBRO and the importance of drawing on the expertise of trading standards officers, will he give the House an assurance that there will be an opportunity to involve environmental health officers who, along with trading standards officers, play an important role in making sure that public health standards are of the highest calibre?
I can assure my hon. Friend that the LBRO will want to draw on all relevant expertise in its task.
Part 2 establishes a statutory framework to deliver increased certainty and consistency of treatment for businesses that operate across local authority boundaries. By granting these businesses the right to refer a primary authority to inform how that business should be regulated—that is particularly relevant to businesses that operate across a number of local authority areas—part 3 will give regulators access to a suite of more flexible and proportionate civil sanctions to promote better compliance with relevant regulations. That measure has been welcomed by many leading business organisations. Part 4 will bring increased accountability and effectiveness to the way in which regulators work in practice. It is not enough simply to count the number of regulations on the statute book: the way in which regulation works in practice is extremely important for this agenda, and the focus will be on the removal of unnecessary burdens.
The measures will better protect the public, boost business confidence and bring increased clarity and consistency to the work of local authorities and national regulators. Together, they will help build a more open, simpler and coherent regulatory enforcement system which is transparent, professional, and proportionate; which does not criminalise inadvertent or minor breaches of regulatory requirements; and which does what my hon. Friend the Member for Stafford (Mr. Kidney) said, and tackles rogue traders more effectively.
May I set out in a little more detail what the measures do? Part 1 establishes the LBRO. Local authority professionals play a critical role in the enforcement of UK regulation, and those services are rightly proud of the support and advice that they provide to help businesses comply with the law. For example, Cambridgeshire trading standards has built an award-winning partnership with local businesses that continues dramatically to reduce the sale of age-restricted goods such as alcohol to children. Local authority enforcement officers operate within a complex system, with hundreds of local authorities interpreting and enforcing regulations set by Government Departments and regulators.
Part 1 will create a new statutory public corporation—the local better regulation office—to work with all parts of the system to help local authorities carry out their regulatory functions effectively and in line with better regulation principles. We have already established the LBRO as a company, and the Bill will give it statutory form, with the powers and duties that it needs to take its work forward. That includes a power to give guidance to local authorities on better regulation matters, to which those authorities will be required to have regard, as well as a right to advise Ministers and make proposals about the framework that central Government set for the work of local authorities in practice.
The day before yesterday, the Select Committee on Regulatory Reform took evidence from LACORS—Local Authorities Co-ordinators of Regulatory Services—which made the precise point that the LBRO should not just tell people what to do but should provide guidance and assistance, and should offer a mechanism for taking its concerns to the heart of Government Departments. Does such a role and relationship mirror what my hon. Friend hopes will be developed?
It is certainly the case that the LBRO’s functions include advice to central Government as well as to local authorities. It has rightly been argued that the powers that the LBRO will enjoy must be balanced by sufficient safeguards to protect local authority interests. The Bill includes a number of measures to achieve that, particularly in respect of the LBRO’s ability to issue directions to local authorities. That is subject to the strict requirement for consultation and, where more than one local authority is involved, for parliamentary approval.
Part 1 will make a major change to the way in which central and local government can work together on this agenda, and it will deliver real and lasting benefits to organisations, business and consumers. Part 2 deals with the primary authority principle, which is important, as some nationwide firms deal with up to 400 local authorities. The Hampton review highlighted the impact of inconsistencies in the different approaches adopted by local authorities to regulatory compliance and enforcement for businesses whose operations extend across more than one local authority area. Whatever business says about regulations, one thing that it wants is clarity. Conflicting advice and inconsistent enforcement can militate against clarity and increase business uncertainty and risk. For example, a challenge to the way in which a food product is labelled in just one local authority could mean the business concerned having to revise its entire policy throughout the country, with significant costs.
An attempt has been made to deal with that problem through the principle of home and lead authority schemes. That has gone some way towards resolving the issues, but such schemes are still informal and voluntary, and are not always open to those businesses that urgently need them. Part 2 will therefore provide a framework to guarantee more consistent regulatory treatment of businesses that operate across multiple local authority boundaries. The primary authority principle enshrined in the Bill will ensure that where a business and a local authority have committed time and effort to developing a productive advisory relationship, there should be a presumption that advice given to that business will hold good throughout the country, except where there are good reasons for local variation.
My hon. Friend is making an important point about the outcomes of the Hampton review. Is there a parallel in the Bill to address the needs of consumers, where scams are operated that cross boundaries? He mentioned Cambridge, whose city council was incredibly helpful to me when I was pursuing a case that crossed boundaries. However, both the council and Cambridgeshire police authority faced problems because of current law. Does the Bill address that aspect, too?
Will my hon. Friend clarify one point about the primary authority? I am familiar with the way one local authority takes the lead when a business has many outlets throughout the country—usually it is the authority that hosts the head office of the company or the main point of business. Is that the approach being taken or is it likely that businesses will be able to choose their regulator? The latter could give rise to the worry that businesses might choose the softest authority to be the lead.
There would have to be a good reason for a local authority to serve as the primary authority. There is also a mechanism in the Bill for an enforcing authority, as distinct from a primary authority, to appeal to the LBRO, if it thinks that the primary authority has made a mistake or that what might be called a sweetheart deal has been made between the primary authority and the company in question.
I am grateful to the Minister, a fellow midlands MP, for giving way. Although I endorse the sentiment of the Bill, is the fact that the Government have had to bring it before the House not an admission of failure, not least as the CBI has said that £55 billion-worth of regulation has been placed on British business since Labour came to power? In a sense, it is ironic that today we are regulating to deregulate.
The Bill is certainly not an admission of failure. The regulatory reform agenda in the UK is widely admired. The country remains a great place to invest and this year the World Bank’s “Doing Business” survey placed the UK second in the EU and sixth in the world for the best business conditions.
My hon. Friend spoke earlier about continuity, clarity and relationships, which are important. He is right that the Bill is not a failure. However, I have a concern about the protection of employees and the relationship between the ombudsman and the new statutory body. Would that be a joined-up relationship?
I know that my hon. Friend cares deeply about the protection of employees; and, as the Minister responsible for employment relations, so do I. I assure her that we will do nothing in the legislation that militates against proper and decent conditions for employees.
In relation to the question that the hon. Member for The Wrekin (Mark Pritchard) has just asked, when the Regulatory Reform Committee took evidence from the Environment Agency yesterday, I asked which other European countries we could take a lead from, because we are visiting three next week to look into their regulatory reform procedures. One of our key regulators said that, if anything, we were in advance of other countries, as the Minister just indicated.
It is beginning to sound like I could have done with being at yesterday’s sitting of the Regulatory Reform Committee. I certainly endorse the idea that Britain is a leading force in that agenda throughout the world. As we know, success in today’s economy is increasingly driven by better informed customers, empowered employees and enlightened companies that value their reputation across the world. To continue to create jobs and wealth for our country, UK businesses must be able to compete in that environment.
One of the other features that the Hampton report highlighted was businesses’ frequent complaint of being undercut by rogue traders who flout regulatory rules. As a result, the Government asked Professor Richard Macrory to review the regulators’ enforcement regimes. Professor Macrory found that most regulators were over-reliant on the single weapon of criminal prosecution, which he found was a potentially disproportionate response to cases where there is no real wilfulness or intent on behalf of the business concerned and, paradoxically, led to a compliance deficit, whereby breaches of regulation go unpunished because a regulator lacks alternative methods of enforcement.
To address that deficit, part 3 will introduce new civil sanctions the better to target rogue traders and deal more appropriately with well-meaning businesses that find that they have contravened regulations in one form or another. The Bill enables Ministers by order to select options from a range of new civil sanctions. They include: discretionary requirements to allow the regulator to require the business to take steps to put right a situation that has followed from a breach of regulation; and monetary penalties, so that regulators can impose financial sanctions, if appropriate, at various levels.
There could be various scales, because there is also the capacity for variable monetary penalties, which is an important part of the regime. In addition, there can be enforcement undertakings that present a fundamental change to the traditional relationship between the regulators and businesses. In certain circumstances, such undertakings would allow the business to volunteer alternative ways of making good the harm arising from the breach in question.
I am extremely grateful to the Minister, as we are talking about an important measure. He is making a logical case, but I have not been able to find out how many fewer prosecutions will occur because of the new regulations. Does he know whether prosecutions will be reduced by, say, a half or 10 per cent.? What research have the Government done in that area?
We have conducted an impact assessment on the savings to business, which I shall come to. There could still be prosecutions for more serious offences, but the number of prosecutions will depend on the number and nature of any offences committed.
Some have suggested that the provisions will oust the jurisdiction of the criminal courts. The provisions in part 3 provide an alternative to criminal prosecution, but prosecution will remain the right course of action for the more serious breaches of regulation. We do not want to criminalise well-meaning businesses unnecessarily, but we of course reserve that option for the more serious and consistent offenders.
On the point about quantifying these issues, in Prime Minister’s Question Time, the Prime Minister indicated his support for the private Member’s Bill promoted by the hon. Member for Ellesmere Port and Neston (Andrew Miller) on agency and temporary workers. Will the Minister take this opportunity to put on record and quantify the cost to British industry of the Prime Minister’s comments today?
We will publish any cost estimates and other information on that in due course. I do not want to get drawn into too long a debate on this issue, but, as in other fields, we have tried to achieve a method of meeting our goal while retaining the flexibility on which the country’s high employment record has been built. That will be our intention going forward.
I was talking about prosecution. It is true that the courts will play an ongoing role with the most serious offenders. It has been suggested that, through the variable menu of enforcement actions, regulators will somehow be acting as judge and jury, with no checks on their powers, but I assure the House that that is not the case. The Bill contains a number of essential safeguards. It makes it clear that a Minister can confer powers on regulators only if the Minister is satisfied that they are capable of exercising those powers in compliance with better regulation principles. Before regulators can impose monetary penalties or discretionary requirements, they must be satisfied beyond reasonable doubt that an offence has been committed. Businesses can make representations and objections before sanctions can be imposed, and, most importantly, there is a right of appeal to an independent and expert tribunal. Furthermore, regulators that misuse their powers could risk the suspension of such powers.
We have worked hard to ensure that the regime of variable sanctions can work appropriately, and we believe that its operation could bring significant savings to business. The Engineering Employers Federation says, on this point:
“EEF supports the principle of alternative penalties for regulatory offences as a mechanism for reducing demands on court time, speeding up the process of enforcement and sanctioning, and reducing the costs associated with this for businesses.”
Notwithstanding that quotation, there is a lot of disquiet within industry that many such fines might be slapped on to businesses. The Minister said that regulators will not act as judge and jury, but then proved that that is exactly what they will be by saying that affected businesses will be able to appeal afterwards. That will not stop the initial effect. The truth is that before going to an expensive and administratively challenging appeal, businesses could be subject to overuse of the regulations. There are concerns.
The hon. Gentleman contradicts himself. He says that regulators will act as judge and jury despite the fact that there will be an appeal to an independent tribunal; the very fact that there is an appeal process shows that that is not the case. This is not the first time that civil sanctions have been used; indeed, I have looked up some precedents. The last time that the hon. Gentleman’s party was in power, Companies House introduced a regime of civil sanctions for the late filing of accounts, and I am pleased to tell him that it increased compliance. There is a precedent, and it was introduced when his party was in power.
On the costs and benefits of the measures, taken together, we estimate that the overall benefits for business could be up to £200 million through better enforcement, lower legal costs and the variety of enforcement actions.
Will my hon. Friend discuss with local authority organisations their ability to use the civil courts and to have representation in them to ensure that they are able to take cases through those procedures rather than just through the criminal courts? I know that they still have concerns about their ability to get an audience in the civil courts and about costs. I do not know the details of those issues, but will he discuss them further with those organisations?
I am always happy to discuss such matters with local authorities.
Part 4 will create a power for Ministers to apply a duty to regulators requiring that they keep their functions under review and do not impose or maintain unnecessary burdens. It is envisaged that the power will be used where the duty will help to promote better regulation and a more accountable approach. Where the duty has been applied to a regulator, the regulator would need to report on the action taken.
I am grateful to the regulators who participated in our informal consultation on this part of the Bill. They emphasised that action to remove burdens must be proportionate, and that the benefits delivered must outweighs the costs. The duty therefore requires the removal of unnecessary burdens where it is practicable and proportionate to do so, and aims to deliver more robust enforcement of regulations. There is no intention to remove the protections that Parliament considers to be necessary, or to bog down regulators in a process of review that has been generated by frivolous complaints. Nor is the duty intended to apply in response to a particular decision by regulators in the competition field—for example, in such a way as to undermine decisions in competition cases. In most cases, a statutory instrument will be needed to apply the duty, which will be subject to the affirmative procedure. We know that that is a strong parliamentary safeguard.
Provisions on this issue were refined in the other place, and the five regulators named in the Bill asked to be included in order to emphasise that the duty in no way compromises their independence. Therefore, this part of the Bill will ensure that the enforcement of regulatory protections supports the best possible framework to enable British business to compete and succeed in today’s global environment.
I draw my marks to a close by paying tribute to the hard work and expertise of those involved in scrutinising the draft Bill. The Bill has been improved as a result of that scrutiny, and the work that has already taken place to get the provisions right, which has involved businesses, the enforcement community and national and local regulators, provides a strong base for future implementation and enforcement.
The Bill contains an ambitious package of measures that will help to boost business competitiveness and productivity in this country. That will help to maintain our position, which the World Bank has stressed, as a great country in which to do business and to invest. It will also help to create a modern, flexible and robust regulatory system that will secure the better protection for citizens that we all want. It will deliver proportionate regulation and will boost certainty and competitiveness for the honest businesses that are creating wealth day in and day out in our country. All those aspects are essential to ensure that we have a dynamic economy.
Thank you, Mr. Speaker. My hon. Friend has been very generous, but this is only my second intervention; some folk have been in about 14 times. I will thank you for it, but I will not apologise for it. Could you give an example of some of the mergers of national regulators? Who will be responsible for them? Will it be the new statutory body? Will it be you? Who will it be?
My hon. Friend is right to say that there has been a number of mergers of national regulators. We believe that the proposed process will provide greater focus, and we are determined to carry it through. The Bill is concerned not so much with mergers of national regulators as with how they operate and carry out their duties. The four parts of the Bill are designed to improve that operation and to create the right system for the future.
I conclude simply by saying that the Bill will boost certainty and competitiveness, and improve the accountability of regulators, which are essential to our economy and to the quality of life in this country. On that note, I commend the Bill to the House.
Debates and Bills aimed at reducing the country’s regulatory burden are always welcome to the Conservative party. However, we have been here before. Indeed, the Minister for Employment Relations and Postal Affairs and I have personally been here before, when we debated this exact issue at the time of the Government’s last unsuccessful effort at regulatory reform, namely the Legislative and Regulatory Reform Act 2006—just two years ago.
The Minister welcomed that particular piece of legislation, arguing that it gave a power to remove unwanted regulations through legislative reform orders. Those provisions, however, were themselves designed to upgrade the failed regulatory reform orders that the Government had implemented some five years earlier. Looking back, we remember that great things were predicted in regard to slashing red tape in business. On 15 May 2006—almost two years ago to the day—the Minister said that the Bill would provide initiatives on
“reducing the administrative burdens of regulation, consolidating and simplifying legislation to make it easier to understand and work with, and deregulation.”
“It will also allow us to reduce administrative burdens, such as by simplifying administrative requirements for business when setting up a business or hiring staff, by ensuring that inspection is risk-based to reduce the burden on those who comply with regulation”.—[Official Report, 15 May 2006; Vol. 446, c. 719.]
Such grand ambitions we had, back then! But did not that sound just a little bit like what the Minister predicted today? He said a moment ago that this Bill would provide lasting benefits to business, and, in his final flourish, that it would boost business competitiveness.
Last time, the practice turned out to be rather different from the theory. By the end of 2007, when the legislation had been in force for nearly a year, the Financial Times reported that the law had yet to cut or even amend a single regulation. An update from the Minister today on the outcome of the existing package of reforms would therefore be appropriate. Perhaps we should not be surprised that, in his opening remarks, he rather interestingly omitted to mention the Government’s record to date. So here we are again. Is this going to be third time lucky? Given the Government’s record of failure on this issue, the Minister will understand my, and business’s, caution.
My hon. Friend is highlighting the fact that we are experiencing a deregulatory “Groundhog Day”, ever to be repeated. This is not a day for party political partisanship, so I do not particularly want to dwell on the failures relating to endless criminal offences, the failure to make our streets safer, or the endless education Bills that have failed to make our schools better. I hope, however, that my hon. Friend will be able to persuade the Minister either to tell us that he will be back in 18 months when this legislation has failed, or at least to admit that he needs to go back to first principles, rather than imposing yet more regulations on top of the regulations that we already have.
If the Government’s future record is going to be anything like their past record, we will indeed be back here in 18 months, unless they are preparing for a general election and do not have time to deal with more regulatory reform. My hon. Friend makes an important point. In its 2001 manifesto, the Labour party pledged to cut red tape. However, the British Chambers of Commerce’s burdens barometer of 2007—presumably things have got worse since then—showed that the total cost of new regulations on business since Labour came to office stood at some £55.56 billion.
As party politics have been introduced into the debate in the previous intervention, and as the hon. Gentleman is so interested in this issue, may I ask him to encourage the Conservative members of the Regulatory Reform Committee—a Committee set up by this House—to attend its meetings? Unfortunately, I have to leave this debate shortly to attend pre-arranged meetings. However, since I have been a member of that Committee, I have attended every meeting. I have seen only one Conservative member there, for a short period of half an hour, at one meeting. Please will he encourage them to turn up to the meetings of that Committee of the House, which was set up to look at this subject?
The hon. Lady has made her point, but if, as a Front Bencher, I were to comment on a Committee of the House, I am sure that people would jump on me from a great height.
We welcome the stated aims of the Bill. It seeks to implement the principles of risk-based and proportionate regulation. Those principles stem from the Hampton and Macrory reviews on regulation, and were generally welcomed by all parties in the House at the time. However, we remain to be convinced that the Bill, as drafted, will totally achieve those aspirations. Indeed, we have many serious reservations about significant parts of the Bill, in relation to its practical operation and its legal effect.
The Bill requires business to take a leap of faith. It proposes that regulators be awarded additional powers to sanction business, in exchange for a promise of a better regulatory environment. We recognise the concern expressed by the CBI that
“in order to be comfortable with the awarding of these new powers to sanction business, employers need confidence that regulators will deliver their side of the bargain.”
Indeed, we are concerned that much of the Bill could put small businesses—which are already buckling under the increased corporation tax and capital gains tax burdens placed on them by the Government—at a significant disadvantage.
The Conservative party is currently working on measures to drive out the “regulate first” culture in Whitehall, which has blossomed under this Government. This issue is very important to us. To that end, my hon. Friend the Member for Rutland and Melton (Alan Duncan), the shadow Secretary of State, has launched an independent taskforce, led by Sir David Arculus, to look into an overhaul of the regulation machine. All aspects, including the use of targets, management and training, and the vital need to address the wider cultural issues—including in the civil service—will be examined in order to make regulation the last resort rather than the first option.
In the meantime, the Conservatives welcome the mood music coming from the Minister about the need to reduce the burden of regulation. To be credible, however, he must put this into the context of the new regulatory proposals announced by the Prime Minister last week. An example is the regulations dealing with agency workers’ rights. They were released to the press yesterday without a ministerial statement being made to the House, and with no indication of their cost to business, which is likely to be huge.
Neither we nor the business community have forgotten the record of this Government to date. Despite their manifesto promise to cut red tape, they have presided over a £65 billion rise in the cost of regulation since being elected, or the equivalent of 40 new regulations every working day. The Federation of Small Businesses has calculated that the average small business now spends some seven hours a week simply complying with Government red tape. Some people argue that this is all the fault of the EU, yet the evidence shows that, all too often, the Government gold-plate EU directives. The British Chambers of Commerce estimates that the UK’s average elaboration ratio—as it calls it—for 100 directives implemented between 1998 and 2002 was 334 per cent. In other words, the Government provided three times the verbiage and potential regulation in relation to EU directives than it needed to.
The result is that the cumulative burden of regulation is now deterring small companies from creating jobs. Over the past few years, we have seen a steady decline in the proportion of small and medium-sized enterprises that are employers. Today, seven out of 10 SMEs employ no one. As the chairman of the Forum of Private Business put it:
“The fact of the matter is that there are no more employers than there were in 1997. This increase in the number of small firms is all about more companies without employees.”
We have heard a lot of talk from Labour before about wanting to cut the regulatory burden on business. In 2001, we saw the introduction of the regulatory reform orders, which, we were told, would transform the process and lead to the scrapping of thousands of regulations. Yet the reality has been somewhat different. In 2005, the Cabinet investigated progress. In four years, Ministers had managed to identify only 63 possible laws that they were willing to tackle. Worse still, of those, they managed to implement only 27. Given that over the same period, there were more than 12,000 new statutory instruments, that was a dreadful indictment of Ministers failing to deliver on their promises.
With respect, even if we acknowledge that it did—I am sure the hon. Gentleman is right in that respect—it does not change my overall point.
Then, when regulatory reform orders were clearly not working, Ministers introduced the Legislative and Regulatory Reform Act 2006, and I have already shown how ineffective it has been. We need to remember that this was the very Bill in which the Government proposed—and, thankfully, lost—their so-called Henry VIII clause, which would have allowed them to change any law or order without recourse to Parliament. I have to say that was one of the least inspired proposals to emerge from the Minister’s Department.
After all that failure, people are entitled to ask what this third attempt at deregulation will offer the business community and, just as importantly, whether it is going to work. As the Minister explained, there are four main parts to the Bill, which I shall deal with in turn. In doing so, I congratulate my noble Friends on their work in the other place, but I reiterate that we do not feel that we are yet quite there.
As the Minister said, part 1 provides for the establishment of the local better regulation office. Its stated purpose is to promote greater consistency among local authorities and between them and central Government. The first two parts of the Bill stem, as I have said, from the Hampton and Macrory reviews, which established the need first for risk-based and then for proportionate regulation.
We support the general argument in favour of making regulations risk-based. As the Hampton review identified, if regulatory action is required, it is vital that it be drawn up and implemented in a way that relates directly to the risk it seeks to mitigate. All too often, regulations and their enforcers have acted in a way that completely fails to understand the scale of the risk involved and therefore the degree of regulation that is appropriate. That is the sort of calculation that, in practice, most businesses make on a daily basis, but naturally it is all too often missing in the public sector.
One example of the failure to take account of risk was provided by the Chartered Institute of Public Finance and Accountancy to the Hampton review. In 2002-03, local authority trading standard officers inspected 10 per cent. of all traders’ weights, identifying inaccuracies in 6 per cent. of cases. Yet in the same year, they inspected 22 per cent. of all alcohol measures, even though only 2 per cent. were found to be inaccurate. Clearly, in that instance, resources could have been better allocated. The case in point also shows how small businesses—for instance, pubs—can feel the burden disproportionately. That is supported by a survey carried out by the FSB, which found that although two thirds of small businesses want to grow, half see regulation as
“a serious barrier to growth”.
The establishment of the LBRO follows on from the Hampton review and is the Government’s response to the clear need to improve the quality and wide variance of local authority regulatory services. Those include trading standards, environmental health, licensing and fire and rescue services. We have a number of concerns about that.
First, we remain suspicious of the claim that it is realistic to assert that a single, small organisation will be able to deliver a step change in regulatory practice across nearly 500 much larger local authorities in England and Wales. To effect the kind of improvements needed on poor performance, regulators will need a change in the internal management, training and culture of that organisation. How realistic is it that the LBRO could deliver that on its own? We think that that needs to be looked into further. Secondly, why do the Government believe that the answer to the problem of poor regulation locally is to create another super-regulator—a point raised by my hon. Friend the Member for Wellingborough (Mr. Bone) earlier?
The hon. Gentleman cannot have it both ways. We often hear from Conservative Members that so many local authorities are Conservative controlled—a matter of fact, as it happens. Is it not within the hon. Gentleman’s party’s control to determine the degree of light touch to which local authority regulators work? Is there not prima facie evidence that we need some central co-ordination through the proposed LBRO?
Possibly, but the extent to which that is the case needs to be looked at further in Committee. People ask why the Bill introduces a super-regulator to regulate the regulators, which is another issue for careful consideration in Committee.
Thirdly, we are concerned about the precedent that clause 7 represents. As far as I can tell, the Bill would allow for the first time an unaccountable body to have the ability to turn mere guidance into direction—and not just its own guidance, but that of five other regulators, including the Health and Safety Executive, the Environment Agency and the Food Standards Agency. Until now, that power has been in the hands only of a Secretary of State, accountable to this House, and only for exceptional matters. This is a very substantial change, about which we still have significant concerns.
Part 2 is designed to establish “primary authorities” so that businesses operating in more than one local authority area can choose to be regulated by a single authority. We understand the concern of many small businesses or business organisations that the measure could unfairly create two regulatory regimes: one for larger firms and one for smaller firms. Thus, a large store would be able to choose who it would like to regulate it. Given the number of outlets, that would make it a very substantial contract and the chief executive officer of that large store would no doubt wish to work with, say, a pragmatic business-friendly Conservative council offering the most efficient, least bureaucratic regime. So far, so fair. However, where does that leave the local convenience store in a business-unfriendly council area? As a small shop with one outlet, it has no choice. It will have to be regulated by the local regulator, and if it is badly run, it may be at an immediate disadvantage.
Equally, there is considerable potential for consumer confusion and bureaucratic dispute. If a complaint is made against, say, a store in one city, but the same store has chosen to be regulated by a different local authority, to whom do consumers complain and how can they be sure their complaint will be pursued? There are some serious issues to be debated.
Without significant levels of intervention from the LBRO, the system may not work. In order to make certain that there is consistent application of regulatory activities by local authorities, we need seriously to consider the suggestion that the LBRO be given powers to ensure that authorities that do not demonstrate adherence to the Hampton principles are called to account.
When the hon. Gentleman comes on to the detail of how the LBRO will work and, indeed, to deciding whether the Conservative party will support it, will he take into consideration the comments of the British Chambers of Commerce, which said:
“We look forward to working with LBRO to improve the regulatory landscape… We welcome these proposals as a means to take forward the Government’s commitment to ensuring a lighter touch on compliant businesses, but be tougher on rogue traders.”?
I am sure that the Government will bear that in mind in their subsequent negotiations with business.
We also share the concerns voiced by the British Retail Consortium that the powers given to primary authorities to ensure co-ordination of regulatory enforcement have been much weakened since the recommendations of the Hampton review. As the Bill is drafted, local authorities must only “have regard” to an inspection plan agreed on by a business and a primary authority and endorsed by the LBRO. We should fear even more red tape if a primary authority can ignore an inspection plan that has been both costly and time-consuming to draw up.
The decision to allow primary authorities to charge for their services also rings legitimate alarm bells for businesses, which, of course, already pay for enforcement services through their local rates. If they used the primary authorities, could they be subjected to a regime of double taxation? Unless the powers of the primary authorities are bolstered, businesses may see them as just another unnecessary extra expense. We look forward to debating our concerns about this part of the Bill with Ministers, and establishing just how far the Government have thought it through.
Part 3 gives regulators a wide range of powers and sanctions, often involving fines, which can be imposed without recourse to the courts. We do not oppose civil penalties per se, but we feel that we should review the extent to which they should be restricted. As drafted, the Bill specifies no such restriction. Nor are the new powers being granted to a handful of public bodies; they are to be granted to a total of 27 different designated regulators, who will be able to fine in relation to offences arising from more than 140 enactments listed in schedules 6 and 7.
May I apply the same test that I applied to the Minister? I note that the Bill contains no apparent definition of the fixed penalties that could be imposed, but we are working on the presumption that they will be imposed on rogues. Does the hon. Gentleman envisage any limit to the scale?
Let me go back a step and say that I do not necessarily believe that the penalties will be attached to rogues. If there is to be a scale from caution to big caution to small fine to big fine to heavy-duty prosecution—a full scope of response, in other words—I do not think that someone who incurs a low-level fine should necessarily be called a rogue. I think that businesses that incur fines and have no recourse to arguing against them might object to being called rogues as well.
I shall move on, if I may. The hon. Gentleman has had a good go.
On Third Reading in the other place, Lord Lyell said that in effect the Bill gave the regulators
“the power to be investigator, prosecutor, judge, jury and sentencer”.—[Official Report, House of Lords, 28 April 2008; Vol. 701, c. 26.]
That is a matter of great concern. The combination of wide powers being granted to a large number of unaccountable regulators for a long list of offences could be both disproportionate and unnecessary.
I appreciate the anxiety expressed in the other place by the former Attorney-General about the possibility of regulators’ behaving in the way that the hon. Gentleman has described, but will he acknowledge the existence of an important additional protection? When a business has been investigated and there are concerns about its performance, it can appeal to an independent tribunal. Is that not an important safeguard?
I think that it is important, and I also concede that this measure does not exactly constitute the Henry VIII abolition of Parliament-type clause that we saw in the “Leg and Reg” Bill which became the Legislative and Regulatory Reform Act 2006. However, we still have worries about the extent to which it will be applied. We are also worried about associated constitutional reforms that would give an all-powerful role to unelected bodies.
That is a good point with which we agree, and which was picked up by the CBI, which has said that there
“should be the opportunity for independent review before a penalty notice is issued.”
The British Retail Consortium regards the sanctions as “unacceptable”, while the Forum of Private Business, in its response to the pre-legislative consultation, attacked the Government for trying to present the measure as a “simplification” and said that it regarded this part of the Bill as a “deal-breaker”. Interestingly, the BRC also condemns the introduction of administrative penalties, believing that they would undermine the risk-based approach to regulation. If enforcement simply means handing out the equivalent of parking fines, how will that encourage better regulatory practice?
What is clear is that this part of the Bill could put small businesses at a significant disadvantage yet again. Whereas medium and larger businesses will be quite able to pursue the tribunal and appeals processes, most small firms will have neither the time nor the wherewithal. Ordinary people such as owners of small shops, farmers and drivers of vehicles are likely to feel compelled just to pay up and get on with trying to run their businesses and earn a living, rather than allowing their time to be taken up with such procedures. If we get these measures wrong, they could be deeply resented by many thousands of small businesses and sole traders across the country.
Part 4 creates a power allowing Ministers to require regulators not to impose or maintain unnecessary regulatory burdens. It would seem to be well intentioned, but I have been made aware of concerns expressed by the National Consumer Council, not least that there is a potential for this explicit and overriding measure to restrain the ability of regulators to protect consumers. We shall seek to explore that further in Committee.
The stated aims of Ministers are welcome, but we have heard all this before, and we remain to be convinced that the Bill will achieve those aims in its current form. We have other fears as well. We heard today of the Government’s announcement of their intentions in relation to the Temporary and Agency Workers (Equal Treatment) Bill, which was the result of what I would describe as a classic “beer and sandwiches in Downing street” operation. I have still not seen the proposals, apart from what the papers have said, and I have since discovered that the same applies to many organisations. Given that the CBI has said that the regulation could cost British industry up to 250,000 jobs, I consider the absence of a ministerial statement and the Minister’s failure to mention the matter during the debate to be cause for grave concern.
No, it is not. We are talking about changing the cultural values of Government, local government and other public bodies in regard to regulation. If those cultural values are to switch to beer and sandwiches at No. 10 Downing street in order to wrap up regulation, I am gravely concerned about how the Bill will deliver anything like what the Government are proposing.
The 250,000 figure that the hon. Gentleman cited does not relate to yesterday’s announcement, and is any event based on a speculative view similar to that which was expressed when Labour introduced the minimum wage. The view proved to be false then, and it will be shown to be false now.
I thank the hon. Gentleman for finally giving way. Does he accept that the CBI’s estimate of job losses related to the private Member’s Bill introduced by my hon. Friend, and not to the agreement that it negotiated and to which it signed up yesterday? Does he accept that those are two different things?
The Minister is right in so far as the Government’s beer-and-sandwiches deal is separate from the private Member’s Bill that was pulled today. However, he should tell the full story, and reveal that the CBI described his deal as the “least worst option”. We need to get to the bottom of the extent to which it is the worst option. The House has not been told what will be the impact on British business of his proposed deal with the unions, and he should tell us that at the earliest opportunity. The private Member’s Bill was never about defending workers from exploitation, as the hon. Member for Ellesmere Port and Neston announced at Prime Minister’s questions earlier today. That is covered by existing legislation, and it will also be covered by the Employment Bill, which the Government are separately bringing before the House.
What we have opposed and will continue to oppose is a one-size-fits-all straitjacket of regulations that will destroy the flexibility that is key to the British workplace. Given that more than 90 per cent. of businesses are small and that large sections of the Bill could make things worse for them, we do not believe that the net effect of this Bill will necessarily be good for business. Therefore, although we will not oppose the Bill today, if it becomes clear in Committee that our concerns are justified, we will have no hesitation in voicing our opposition at the appropriate stage.
As I was listening to the previous speeches, I could not help thinking that this is perhaps the first time I have debated something other than post offices with the Minister. Therefore, this must be a moment of light relief from his usual diet of at least six post office Adjournment debates a week.
As the Minister said in his opening remarks, this Bill was born out of the recommendations of two reviews. The Hampton review focused on the need for regulation to be risk-based and proportionate and looked at the scope for reducing regulatory burdens on business, and it identified the need for better co-ordination between regulators and for less duplication.
Of the two reviews, the Macrory review, if fully implemented, will probably have the greater impact on the practice of regulators. It recognised that much current enforcement is not effective in changing the behaviour of businesses and recommended a shift to the use of civil sanctions, including fixed penalty notices, as well as many more innovative ideas such as restorative justice and new criminal sanctions.
Inasmuch as the Bill recommends greater co- ordination between regulators and the use of civil sanctions as a quicker means, in certain circumstances, of changing the behaviour of businesses than lengthy processes through courts, I and my party will support it. We support the premise of the Bill; we are signed up to the intention behind it, and we will support it on Second Reading. However, we still have doubts about whether all the detail in the Bill will result in the changes of behaviour that the Minister hopes for, whether some of the sanctions proposed will increase or decrease the regulatory burdens on business, and whether there is adequate understanding of the role of local authorities in the prescriptions for the regulator. We will want to explore such matters in Committee—some for clarification alone, and some for amendment.
I recognise, however, that the Bill did change during its passage through the other place, which is welcome. The requirement for criminal levels of proof before making civil sanctions is a good step, as is the decision to set out in the Bill a requirement for an appeals procedure, although its full implications need to be further explored in Committee. The agreement that the Minister should satisfy himself that a regulator is essentially Hampton-compliant before it can receive any further penalty powers is also broadly to be welcomed, although I would like to explore in Committee how that Hampton-compliance is to be assessed.
Most welcome, however, was the acceptance of a need for a review of the LBRO’s operation after three years. I hope that this change signals the Government’s conversion to the principle of sunset clauses. For some time the Liberal Democrats have argued that one of the most effective ways of ensuring that we do not increase the regulatory burden on business without clear benefits would be to have a sunset clause on new regulations, whereby each new regulation came back to the House to be approved and we decided whether the regulation needed to be in place now or whether its time had passed.
The key principle of good legislation is that it should be easy to enact. Those being regulated need to understand why they are being implored to behave in one way or another, and they need easily to be able to find out whether they are operating within the law.
The hon. Lady touches on the important issue of burdens and costs of regulation on business. Does she accept that currently the majority of new regulation in the UK comes from Europe? If so, why does her party insist on slavishly following European directives instead of standing up for British business? Her party would also sign up to the euro, which would create restrictions in monetary and fiscal policy.
I do despair of the Conservatives; they manage to get Europe into every possible debate. I am not going to get into a lengthy debate about it now, as I want to talk about the Bill. This is a Second Reading debate and I will deal with the Bill. I will not get drawn into wider discussions, as I suspect that if I were to do so I would be ruled out of order. Mr. Deputy Speaker is already looking at me far from approvingly.
Thank you, Mr. Deputy Speaker.
I was making a point about the tension between the need to have legislation that protects consumers and the need to ensure that it does not overburden businesses. I recognise that it is always extremely difficult to strike that balance. Businesses constantly ask for less regulation, but it can be difficult to identify a specific measure that we want to remove. That, I argue, is why we need sunset clauses, which are one of the simplest ways of ensuring that regulations on business are appropriate and proportionate.
Regulations must also be enforced. Consumers, the public and law-abiding businesses must have confidence in the system and know that competitors that flout the law will be dealt with properly and will not gain a commercial advantage. The key to this is speed. The Macrory review identified the fact that enforcement action that is possible only through a lengthy legal route is a blunt instrument for dealing with many minor offences, and, similarly, that its length and complexity is often a disincentive to regulators using their full powers.
I have seen example of that in my own constituency. Neasden goods yard is within a densely populated residential area. A number of companies operate from the site in waste transfer, handling paper and construction materials. Complaints about dust and environmental pollution, and the antisocial behaviour of lorry drivers using the site, go back at least a decade. One operator in particular, Alloyde II, consistently flouted the advice and guidance given to it by inspectors from the council and the Environment Agency and flouted the conditions of its licence. At one stage in 2006, pollution levels from the site far exceeded safety limits on more than 90 days of the year—and that was only part of the way through the year. But the story of enforcement action against the company was a frustrating one for local residents. The council and the Environment Agency for a long time seemed to be incapable of working together to solve the problem, with each offloading the blame on to the other, until eventually a political change in the council administration led to the issue becoming a priority and the council put pressure on the EA to deal with it. Inspectors from both the council and the EA seemed incapable of co-ordinating their action, and the only real route for the EA to follow was a lengthy legal battle to revoke the company’s licence. At each stage, the company appealed, allowing it to continue operating and so continue to cause misery to the people of Neasden and Dudden Hill.
In retrospect, I wonder whether early co-ordination between the council and the EA and a hefty rapid fine might have resolved this issue for residents. It was certainly worth Alloyde’s while to continue to take its chance that regulation would take a long time to come to fruition and close it down, because it was able to make profits in the mean time. It seemed to local residents that money was one of the only things the company understood.
I tell this story because although much of the focus of the debate has been on the need for regulators to work together to minimise unnecessary burdens on business, there is another reason why they need to work together: to ensure that enforcement action is effective against irresponsible businesses who consistently flout the law. In Committee, I shall judge this Bill on the extent to which it will deliver both those things and not just one.
That is not the only issue I want to explore in Committee. The Minister mentioned the potential for variable penalties and I would like to explore the scale of that in Committee. There is a danger with small fixed notices becoming a levy that large businesses are prepared to pay to go on flouting the law. There is also a danger of catching other businesses that, as the hon. Member for Huntingdon (Mr. Djanogly) said, might innocently break the rules. For small businesses, the impact may be disproportionate: a small shop that makes a mistake storing food is not in the same league as a large laboratory tipping biological waste into a local reservoir.
The Minister mentioned the precedents for civil sanctions. The obvious precedent is the Financial Services Authority, which has long since had powers to fine companies that breach market rules. The size of the penalty depends on certain factors, including the track record of the business, its size and the impact on it. We need to explore that further in Committee. It is essential that the focus of the sanctions in the Bill is on changing the behaviour of businesses and not on a tick-box, parking-fine mentality. The Bill must be about protecting consumers, the public and the reputation of business at large, not about meeting targets.
Some other recommendations of the Macrory review that might be worth considering are not mentioned in the Bill—for example, recommendations about the use of restorative justice. Macrory believes that restorative justice models have the potential for good long-term outcomes, both for victims and offenders, have the benefit of being flexible and are focused on reducing the harm caused. That principle is very much in keeping with the Hampton review and the claimed focus of the Bill. Will the Government introduce pilots in this area, as Macrory recommended? Will they commit to doing so? If not, why not?
Other innovative recommendations in Macrory’s review include criminal sanctions such as the use of publicity orders. Macrory cites the case of the Federal Supreme Court, which sentenced the American Caster Corporation for dumping deteriorating drums of solvents by way of a publicity order. The corporation was required to take out an advert in the Los Angeles Times, at a cost to itself, publicising its breach, and the action that it intended to take to remedy the problem. Has the Minister considered using such measures? Does the Bill provide the flexibility to do that? What assessment has he made of that recommendation?
Finally, I come to two further issues that we will want to explore in Committee. We will want to seek reassurances from the Government that the Bill will not be unworkable for local authorities, which are chiefly responsible for implementing it. It is essential that those giving guidance to local authorities understand the practice of such bodies and their limitations. That was very much the focus of a number of Labour Back Benchers’ interventions on the Minister. It is also important that the need to co-ordinate the activities of companies operating in more than one area does not prevent local authorities from setting their own priorities in respect of democratic choice. I share the concerns of the hon. Member for Huntingdon about the power to turn guidance into direction and about how the primary authority system will work in practice. Such matters need clarifying in Committee.
We are also concerned that the detail of stop notices in the Bill will give undue flexibility to regulators to decide whether to pursue action at the expense of business, which, if not guilty, could lose two weeks of business while the regulator decides what action to take. We need to explore further in Committee whether there are more flexible ways of implementing this provision. We recognise that good work has been done on this Bill in the other place to improve it, and we will support the Bill today, but we feel that more can be done to make it a clearer and more effective tool to improve regulatory practice in this country.
I am grateful to be called in this debate, Mr. Deputy Speaker. First, may I apologise to the House for the fact that, unfortunately, because of a prior commitment, I will not be present for the winding-up speeches?
The Government are very much a Johnny-come-lately to deregulation. I have touched on the irony that the Bill creates more regulation and legislation in order supposedly to reduce regulation. By that very fact, and by their previous form in this area, the Government are very much the worst offender and they set the worst possible example to the nation at large and to large, small and medium-sized businesses.
Given that other hon. Members wish to speak, I shall limit my remarks mainly to small businesses and the Bill’s potential impact on them. Small businesses are the lifeblood of the British economy; more than 95 per cent. of businesses in this country are small businesses of 25 or fewer employees. Without such businesses and hard-working small business men and women, the British economy, and the economy in both my constituency and the fine county of Shropshire, would grind to a halt.
Yet, small businesses are increasingly feeling the tightening of the regulatory noose and the big foot of Government trampling over entrepreneurship and innovation. What business men and women tell me—they mostly do so privately—both in my constituency and as I travel in different parts of the country is that they want Bolshoi light touch regulation, rather than the trampling big foot of Government. Regulation is not a bad thing in itself per se; it is not intrinsically wrong and it has an important role to play both in the private and public sectors—for example, in food safety, consumer protection and environmental health. However, many businesses feel that many regulations are unnecessary and burdensome, and they distract business people from their core raison d’être: creating jobs and investing in communities.
Money and profit have been mentioned in this debate, and there is nothing intrinsically wrong with them. If businesses are not profitable, they cannot grow, expand or employ people. If people are not employed, they do not have the disposable income that they need to go on holiday, to look after their families in the way that they want or, in this day and age of high food prices, to put a loaf of bread on the table. We should not confuse the important issues of profit and business, and the other social factors to which hon. Members referred.
It is not just Members of Parliament, either Conservatives or those in other parts of the House, who are aware of the burdens; the Federation of Small Businesses, the CBI, the Institute of Directors, the British Chambers of Commerce all testify to the fact that burdens on, and costs to, businesses are increasing, rather than decreasing. The CBI has said that since 1997, when this Government came to power, £55 billion-worth of new burden on business has been added. That is a huge sum, and clearly many casualties have resulted. Perhaps the Minister might tell us what research has been done with Companies House on the number of businesses—not only those that have gone into receivership, but those that have voluntarily wound up and have closed their companies—that have closed as a result of regulation and red tape.
Although I agree with many of the Bill’s sentiments, I am concerned that, once again, we are having more law, rather than better law. The Minister must answer another question: given that local authorities enforce about 80 per cent. of regulations and licensing procedures, and given that the need for enforcement continues to grow across the spectrum of various regulations, does he feel that those authorities are adequately and appropriately resourced to be given a greater role?
I am a member of the Select Committee on Work and Pensions, which recently reported on benefit simplification and found that there is still too much complexity in the benefits system. That is relevant, because Government need to set the right example—if Departments cannot do so, how can they expect small businesses to do so? The Government need to apply not only a light touch, but a lot more common sense.
I welcome many of the parts of this Bill, and many of the concessions and amendments made in another place. However, as it stands, the Government are not going to note the flaws that my hon. Friend the Member for Huntingdon (Mr. Djanogly) has rightly pointed out, and the Bill will remain a mess. I do not think that we will be able to support it in the way that the Government would want.
The suggestion that this Government will cut red tape and deregulate is as likely as the Prime Minister performing at a comedy club. If the Government are serious about this issue, they will listen to the concerns of my hon. Friend and of small businesses. It would be helpful if we had more Labour Members from a business background, but unfortunately very few are. I declare an interest as a former businessman, and my hon. Friend for a Northamptonshire seat—
There are so many good MPs from Northamptonshire that I was confused. As my hon. Friend for Wellingborough (Mr. Bone) rightly said, every burden placed on small businesses carries a cost. That cost is not always necessarily financial—although often it is—because it can be in time, with staff distracted from the key issues of running their business, employing people and investing in communities. I hope that the Government will rethink their position on many aspects of the Bill.
It is a pleasure to follow my hon. Friend the Member for The Wrekin (Mark Pritchard), who made a powerful speech today, as he did yesterday. I need to declare an interest—I refer Members to the register—as I am a director of a small company. I am also a member of the Institute of Chartered Accountants in England and Wales.
I am delighted to speak in this debate because of my personal background. I came to the House of Commons late in my career, mainly because the public kept rejecting me—[Interruption.] That is another issue. However, that allowed me to extend my business career. I started a company and went through all the traumas of growing it. Eventually it became a plc, and we sold it on and I started a new company. So I have some personal knowledge of the problems of regulation in business.
I have one story, about VAT inspection, that will illustrate some of the problems. At the time, my company was only small, with five employees including me. We were told that we were to be inspected by the VAT man. We were told the date, and we did an enormous amount of work laying out the books. Unfortunately, on the day there was heavy rain. The inspector was due at 9 am, but still had not turned up by 10, so we rang up, to be told, “Oh, he’s not coming, Mr. Bone, because it’s raining so hard.” That is the sort of thing that drives owners of small companies mad, but they have to put up with it. We were not even inspected afterwards: the inspection was abandoned. It felt like inspection for the sake of inspection.
Much of the merit of the Bill is that it would target rogue traders, or possible rogue traders. The Hampton review stated:
“During 2003…the local authority trading standards officers only inspected 60 per cent. of high risk premises in Great Britain, in 35,000 inspections, yet still inspected 10 per cent. of businesses classified as low-risk, in over 72,000 inspections.”
I understand that the Government now intend that high-risk businesses should be inspected more frequently, but they have not said that they will not inspect low-risk businesses. If high-risk businesses are to be inspected at the rate that the Government suggest, we should be able to reduce the number of inspectors. Do the Government have a target for the reduction of inspectors every year, so that we can see that the decrease in regulatory inspections is actually occurring?
When I worked in business, I was also driven mad by conflicting advice from regulators. An inspector told us how to operate a VAT system for our travel business, but then three or four years later, another inspector came along and said that we had been doing it wrong and that we would be fined. We argued that we were doing what we had been told to do, but no, we had to pay the fine and change how we did things. As it turned out, we did not mind paying the fine, because the new way of doing things saved us an enormous amount of VAT. However, that should never have happened, because the procedure should be made clear to businesses. If the Bill helps to improve that, it should be welcomed.
The real problem is not the implementation of regulation but the fact that the Government create regulation at an enormous rate of knots. I have three ideas for cutting back on regulation. First, we should get rid of the regional assemblies. According to a left-wing think-tank, they cost taxpayers £360 million a year. They do not do anything, so we should get rid of them. Secondly, we should abolish planning appeals. Local elected councillors should be able to decide the merits of a planning application, and that would save millions of pounds. Thirdly, I cannot find anyone who thinks that the Standards Board for England is a good idea, so we should get rid of that. If the Government were proposing such measures, we might believe that they wanted to cut regulation.
The proposed LBRO—it does not have a very good title—should be extended. Why not have it cover the whole of government, not just local government? Why not call it the department for administrative affairs, and build up a big empire? Why not employ lots more civil servants to cut regulation? We could find a Minister to do that—perhaps a chap called Jim Hacker. This is straight out of “Yes Minister”. The Bill will create a body that will cost £73 million a year and employ huge numbers of bureaucrats, with the idea of saving money.
Another thing that used to drive me mad when I was in business was getting a letter from a Government organisation with no date or address, or with an illegible signature. I have a copy of the impact assessment by the Department for Business, Enterprise and Regulatory Reform—the second version, although I do not know why there were two—and the Minister’s signature of approval is a squiggle, so I have no idea who it was. The name of the Minister who signed off this document should at least be printed on it. Of course, the Minister may not want to be identified, because of the problems with the impact assessment.
We are told that the Bill will save businesses a lot of money, and the impact assessment contains some very good figures. The LBRO will cost £73 million a year, although that is a Government estimate, so we can at least double it. Let us call it £146 million for a start. The annual benefit to business, according to the impact assessment, will be £200 million, so we can halve that to get the right figure, so it will be only £100 million. The result is a net loss of more than £40 million a year.
The impact assessment goes into detail about the different costs between local authorities and businesses. One very telling argument is the fact that the impact assessment says that the cost of the new department to local authorities is £13.6 million a year, which will provide a saving of between £14.2 million and £17.9 million a year. That is hardly any saving at all.
Everyone knows that local authorities are the most inefficient part of the whole system. They are far more inefficient than private businesses, but the Government are going to make a change that will cost the local authorities £13.6 million in order to save between £14.2 million and £17.9 million. We are told that it will cost businesses only £7.5 million, and that there will be a saving of between £59 million and £86 million a year.
I do not believe any of it. If we review the situation after three years—I am grateful for the remarks made by the hon. Member for Brent, East (Sarah Teather) on that subject—I do not believe that we will find anything other than a glorious empire with a Jim Hacker-type figure at the top and lots of people sending out lots of bits of paper, which will cost a huge amount of money and not save a single penny.
I am not a betting man, but if I were I would certainly bet £5 that that figure would double, at least, by the end of the first year.
I shall conclude, because I know that other hon. Members want to speak. I have two points. On the EU aspect—this is a serious point—although the Government are right to try to have better regulation, that cannot be done without addressing the point that EU directives cannot be challenged or changed. I am talking about not their principles but their drafting. Sometimes, the EU directives that we see in the Joint Committee on Statutory Instruments are complete nonsense; they are gobbledegook. The Germans tried to change one so that it made some sense, and they were fined by the EU.
The directives are so confusing because they are designed to be confusing. When they were agreed to, the various different countries had different interpretations of them and came up with something that makes no sense and has no clarity. That is the problem for industry. For instance, it was impossible to understand what the European directive on package travel, package holidays and package tours meant. If we could address what European directives are doing and the way in which they are interpreted, that would help the industry’s problems enormously. On the continent, our European colleagues take the directive, put it on the statute book and then ignore it. Such a light approach to EU directives would be most helpful for many of our British businesses.
I have followed the hon. Gentleman’s most interesting speech with great care. Does he not agree that it is the job of our civil servants to decipher what he describes as gobbledegook and put it into plain simple language so that British companies can understand what is required of them with the minimum difficulty?
Of course, that is entirely correct. Unfortunately, they are not allowed to. That is the point. One cannot change an EU directive. It might say that there needs to be a penalty for this or that, but that one could not do something else, either. The three provisions might not tie up, but we could do nothing to change that. My hon. Friend the Member for Stone (Mr. Cash) made this point earlier. We are not just banging on about Europe. British businesses have genuine concerns. Although Government regulations tend to be very clear, as they have gone through the process of scrutiny in the House and the Joint Committee on Statutory Instruments, the numerous European regulations cause the greatest concerns.
The impact assessment said that the change would in no way help competition. I do not understand why, if we are trying to improve regulation, competition will not be improved for businesses. The Minister for Employment Relations and Postal Affairs said earlier that he could not say how many fewer prosecutions there would be, yet the impact assessment states that there will be 22,500 fewer. When he sums up, will the Under-Secretary address that clear confusion? Such a reduction in prosecutions would, of course, be welcome.
My final point, which goes to the heart of the issue, concerns the effect on small businesses. We know that 99 per cent. of enterprises are small, that 47 per cent. of enterprises employ 36 per cent. of the total work force—or rather, they employ a higher percentage of the total work force and account for 36 per cent. of all turnover. It is small businesses that encounter the problems with regulation and its interpretation.
I accept that the Minister comes to this subject with a genuine desire to reduce regulation, but unfortunately the Government are creating something that will make it very easy to impose fines without reducing regulation or the need to interpret it. I see this as an empire-building process, and I am concerned that the office will go down the route of the fictitious department of administrative affairs.
It is a pleasure to follow that experienced business man, my hon. Friend the Member for Wellingborough (Mr. Bone) and my hon. Friend the Member for The Wrekin (Mark Pritchard), as well as my hon. Friend the Member for Huntingdon (Mr. Djanogly), who spoke from the Front Bench. It is noticeable that only Conservative Back Benchers are speaking in today’s debate. I hope that the historic commitment of the Conservative party to small business in particular and business in general, as the generators of wealth on which our public services depend, is reflected not only in this debate but in a forthcoming change of Government.
It is good to see the Minister for Employment Relations and Postal Affairs back in his seat. If the Bill succeeds, I hope that he will be as successful in eliminating unnecessary regulation as he has been in eliminating so many post offices. The Bill represents the third time in six years that the Government have attempted to reduce the burden of regulation. I welcome any opportunity to discuss the burden of regulation—a burden that, according to the British Chambers of Commerce, has cost business £66.99 billion since the Labour Government came to power.
The Government have proved unable to put the brakes on the proliferation of unnecessary regulation and the Bill is an admission of that. After two failed attempts to legislate to cut the number of regulations, we now have a Bill aimed only at curbing the activities of over-zealous men with clipboards. Gone is the promise to cut regulations.
If one needed evidence of the fact that if there is a simple way to do something the Government will find an ineffective and needlessly bureaucratic way to do it, one need only look at their ham-fisted attempt to kick their habit of over-regulation. The Government began with a flourish in 1997 by abolishing the Deregulation Task Force and replacing it with the Better Regulation Task Force. That did not mean that the job of deregulation was considered complete.
In its 2001 Manifesto, Labour pledged to “cut red tape”. Later that year, the Government introduced the Regulatory Reform Act 2001, which produced just 27 deregulations in four years. Does the Minister accept the British Chambers of Commerce’s findings that in the same period 600 new regulations were created?
In April 2007, the right hon. Member for North-West Durham (Hilary Armstrong) said that it was not possible to calculate how many regulations had been repealed in each year since 1997. The effect, it appears, was too small for Ministers to measure. Whatever the exact number of new regulations heaped on business, it is clear that the Government did not regard the 2001 Act as a complete success. It was intended to provide
“a major tool for this and future governments to reform entire regulatory regimes and to tackle unnecessary, overlapping, over-complex and over-burdensome regulation”.
Regulatory reform orders were introduced as the legislative vehicle for amending primary legislation without the need for a Bill. By the end of 2006, 34 RROs had been introduced. In 2001, 63 deregulatory opportunities had been identified, and the Cabinet Office said that the overall outcome was disappointing—a great bureaucratic word.
The 2001 initiative was reviewed by the Cabinet Office in 2005, and it concluded that the Act had simply not been implemented. When businesses listen to Ministers’ fine words today, they will be forgiven for wondering whether they will be translated into effective action to reduce unnecessary burdens.
The Government decided to try again, and hailed 2006 as the “year of delivery”. We were presented with the Legislative and Regulatory Reform Bill—another Government attempt to regulate their way out of regulation. The Minister who opened the debate today said at the time that the Bill would
“reduce the administrative burdens of regulation, consolidating and simplifying the legislation to make it easier to understand and work with, and deregulation”.—[Official Report, 15 May 2006; Vol. 446, c. 719.]
However, the reality turned out somewhat different from the grand ambitions expressed by the Minister that day. By the end of 2007, with the Legislative and Regulatory Reform Act 2006 having been in force for a full year, the Financial Times reported that it had still to cut or even amend a single regulation. According to the Better Regulation Task Force, the Government’s own quango on regulations, the annual burden of regulation on UK business is £100 billion, or 8 per cent. of our gross domestic product. It should be noted that a British Chambers of Commerce study found that that figure was “suspiciously rounded”, and probably too low. I hope that the Minister responding to the debate will answer those charges.
No one can say definitively what benefits the UK taxpayer gets from restricting business in this heavy-handed way. The Competition Commission does not know the impact of regulation on innovation, competition, competitiveness or productivity. We do know that at least 14 new regulations are introduced every day under this Government. Businesses tell us that, if there is one thing that annoys them as much as regulation, it is chopping and changing. When he sums up, will the Minister offer some assurances that this Bill will get things right this time? Could it be third time lucky for us, or does he intend to continue to attempt to regulate his way out of trouble? Can we expect to see the same Ministers who are presenting this Bill today suffering the humiliation of returning with yet more legislation before the Government come to their sad end in a couple of years?
Or sooner, as my hon. Friend says.
I am supportive of the stated aims of this Bill. Proportionate regulation is to be welcomed. I remain to be convinced that the Bill, as drafted, will meet its own aims.
The Bill’s aims have their genesis in the Hampton and Macrory reviews. Hampton, for example, found that the diffuse structure of local authority regulatory enforcement increases uncertainty and administrative burdens for business. Few could argue with that.
I should like to take a few minutes to look in detail at the Bill and its flaws. The Hampton review found that unco-ordinated action means that businesses receive unnecessary inspections and conflicting advice, while a lack of communication between local authorities results in a duplication of effort. Part 1 intends to address those problems by establishing a local better regulation office with the objective, to paraphrase the explanatory notes, of ensuring that local authorities exercise their relevant functions in a manner that is effective and efficient and complies with the Better Regulation Commission’s principles of good regulation. Those principles are that regulatory activities should be exercised in a way that is transparent, accountable, proportionate and consistent, and that they should be targeted only at cases in which action is needed. In short, the LBRO is to be a “regulator’s regulator”.
All too often regulations are enforced in a way that shows no regard for the risk. Not unfairly, trading standards, environmental health and licensing inspectors are regarded as inconsistent and over-zealous. Anything that we can do to change that should be welcomed.
I shall not bore hon. Members with the tedium of the fine detail of the workings of the LBRO. My colleagues in the Lords have done sterling work in securing amendments that will help its operation, but neither they nor I—nor indeed the Minister—can ignore the fact that the establishment and operation of the LBRO seems a hideously complex way of improving the way local authorities regulate. If local inspectors are the problem, is not the answer to reform the rules that they are enforcing and then retrain and manage them to achieve improved outcomes?
As the Minister said, the LBRO will be a small organisation taking on the clout of over 500 big regulators spread across the country. However laudable its aims, we must question its ability to take on the might of those who like to overuse the few powers in life that they enjoy.
Part 2 attempts to introduce a degree of competition between local authorities in the enforcement of regulations. Any regulated person who carries out an activity in the area of two or more local authorities will be able to nominate which body regulates him, and that body will then be that person’s primary authority. That will mean, for example, that such a person need not be subject to enforcement from more than one trading standards authority. One might think that that is fair enough. I recognise that differing interpretations of the same regulations create a major additional burden for businesses. Indeed, I should like to know whether the Minister’s Department has measured the cost of that burden.
If this Bill is passed, Labour-controlled councils might find themselves doing a lot less regulatory work. Just as voters did at the start of the month, the chief executives of big firms will vote with their feet and opt to be governed by Conservative councils that have an understanding of business. That is all very well for big businesses that will be in a position to do that. Indeed, it is to be welcomed. Consistently enforced regulations mean less uncertainty and a reduced regulatory burden, but what about the small shops—“Hutton’s Haberdashery” or “John’s Jewellers”? They will be stuck with the same old regulators and, in Labour areas, all too often the same old over-regulation.
Equally, there is considerable potential for consumer confusion. As my hon. Friend the Member for Huntingdon noted, if a complaint is made against a store in, say, Barrow and Furness that has chosen to be regulated by a different local authority, to whom do consumers complain, and how can they be sure their complaint will be pursued? I shall be interested to hear about that from the Minister who sums up the debate.
My fear is that part 2 will help bigger businesses while making no difference to small shops and punishing consumers, but I also have another concern about it. The decision to allow primary authorities to charge for their services will not play well with businesses that already pay for enforcement services through their local rates. Businesses using the primary authority system will be subjected to what is essentially a regime of double taxation.
The Macrory review made recommendations aimed at ensuring that regulators have access to a flexible set of sanctioning tools that are consistent with the risk-based approach to enforcement outlined in the Hampton review. Many regulators are heavily reliant on criminal prosecution as the main sanction, but the Bill provides for civil monetary penalties. Let us be clear: we are talking about a system of fines that can be imposed without recourse to the courts.
I do not oppose civil penalties, but I feel that we need to review the extent to which they should be restricted. As drafted, this Bill contains no such restriction, and a total of 27 designated regulators will have the relevant powers. The Minister who opened the debate unfairly compared the subjective assessments made by Companies House of how a business is run with the instant fines introduced by the previous Conservative Government for people who do not achieve the clearly objective and easily measurable task of submitting their accounts on time. I hope that the Minister who winds up the debate will say how much leeway the Public Bill Committee will have to restrict those powers and give businesses, especially small ones, some reassurance.
As Lord Lyell of Markyate stated on Third Reading in the other place, the provision in effect gives the regulators the power to be
“investigator, prosecutor, judge, jury and sentencer”—[Official Report, House of Lords, 28 April 2008; Vol. 700, c. 26.]
He has much more legal standing and experience than either I or the Minister, and we should take his words seriously. Earlier, we considered the fact that the right of appeal does not negate the basic accusation made against the new system. The British Retail Consortium says:
“We opposed the introduction of administrative penalties for the very reason that we believe these...could result in a parking fine style system of enforcement.”
That point was made earlier. Wide powers relating to a long list of offences are being granted to a large number of unaccountable regulators; that combination could be disproportionate and unnecessary.
I support the stated aims of the Bill, but it does not come close to meeting those aims. The LBRO—the regulator’s regulator—is small and weak. All the signs are that it will be ineffectual. The provision for primary authorities may help bigger businesses that trade across the country, but it will not help small shops or, crucially, the consumer. Instead, it will lead to consumer confusion.
The Bill attempts to force regulators to enforce regulations in a more measured way, but the civil sanctions section of the Bill will help to foster a traffic warden culture across 27 regulators. Inspectors are elevated to the status of judge and jury. The Government continue to heap regulatory burdens on business. The regulatory impact assessment for the Pensions Bill estimates that the cost of regulation stemming from that Bill alone will exceed £230 million. What estimate has the Minister made of the total cost of regulations associated with the Bills set out by the Prime Minister in the draft Queen’s Speech?
Just six months before he became a GOAT, or member of the Government of all the talents, the Minister for Trade Promotion and Investment, Digby Jones, told The Daily Telegraph:
“Red tape is what governments do…I am on businesses’ side: I'm trying to pull it off without regulation…Otherwise they WILL get the clunking fist.”
The Bill does nothing to change the proliferation of regulations that stifle business. How many more botched regulation-related Bills can we expect from the Government before we get real change?
This has been a significant but relatively brief debate on an important piece of the Government’s legislative agenda. Indeed, the legislation is perhaps the most important Bill for business this Session. However, I think that business representatives watching the debate will be disappointed when they see how few Members of Parliament have turned out to participate in it. They recognise that regulation is one of the most important issues affecting the success of their companies and of UK plc, and they will simply not understand why hon. Members have chosen not to be here to speak up in the interests of businesses in their constituencies. It is important to send the message that the debate deserved better attention.
As many hon. Members have said, it sounds as though the Bill is a step in the right direction, but as we have heard, the Government’s track record on regulation is so bad that we have to be sceptical about their intentions. The fundamental issue when it comes to regulation is that the Government simply cannot stop meddling. They believe that they know how to run every business better than the business man, every school better than the head teacher, every doctor’s practice better than the doctor, and every voluntary organisation better than the people who have run it for years. They simply cannot keep their hands off. They feel that they need to get involved because they alone have the unique skills necessary to make things run efficiently.
The Government always talk about better regulation when they should be talking about less regulation or deregulation. The belief that regulation and interfering are important runs right the way through the Government, but that is not the right way to go. It was notable that when the Department for Education and Skills, as it then was, issued guidance to schools on how to tackle bureaucracy, the document ran to two volumes, because the Department could not make it clear in one volume. As we have heard from the British Chambers of Commerce, we get 14 new regulations a day from the Government—that is £66 billion in extra costs to business. We heard that HSBC, one of the biggest banks in the world, has to face 370 regulatory bodies around the world. We live in an incredibly regulatory environment.
It is right to ask:
“How can an enterprise economy break through when the government presides over systematic, stifling red tape, a discredited planning regime and a society that becomes more politically correct and risk averse by the day?”
Those are not my words, but those of Sir Digby Jones, spoken when he was director general of the CBI. He is now better known to us as Digby the Baron Jones of Birmingham. We always thought that that was the correct form of address for a dowager duchess, but that is how he wishes to be known. He highlighted the issue of regulation before he came to Parliament to sit in the other place. It is of little surprise, therefore, that he is not the Minister taking the Bill through its stages in the other place. I think that he would have found it hard to resist saying that we are over-regulated and need to do more about it.
The Minister talked in enthusiastic terms about the work that the Government have been doing on deregulation, but why are all the representations that we receive from business and other organisations about the pressures that they face as a result of regulation, and the fact that they are regulated too much? Why are we told that the average cost to UK business of implementing new legislation is £133,340 a year? Why does the Federation of Small Businesses tell us that the average small business spends seven hours a week complying with red tape and on paperwork? Why does British Chambers of Commerce estimate that by the time Ministers have taken directives through the system to make them apply to UK law, the cost is increased threefold?
There is too much regulation. The approach identified in the Bill begins to scratch the surface, but it does not address the underlying problem. As we heard from my hon. Friend the Member for Huntingdon (Mr. Djanogly), in four years, only 63 measures were identified under the regulatory reform orders, although the orders were to be the Government’s vehicle for addressing the problem. Only 27 of those 63 have actually been dealt with.
Business in this country faces competition as never before. There was a nice, convenient thought that China would pose a threat to us only on the cheap, dirty side of manufacturing—that was never the way in which we saw manufacturing, but that was the perception. Nobody truly realised China’s ambition to do high-value, high-end work, too. Business was initially attracted overseas by low labour costs. Now, it will go overseas to pursue cheap energy. A key factor in determining whether businesses decide to stay in this country or move overseas is the regulatory environment.
It is a matter of profound concern that companies such as Shire—one of the biggest pharmaceutical companies—are looking to move offshore. WWP is, I think, the biggest advertising and marketing agency in the world; it, too, is moving offshore, and others are talking about doing so. They think that what was special about Britain is being lost, and that other countries offer a more attractive environment in which to do business. What they need from the Government is work done to tackle skills issues, so that the graduates and school leavers who come through the system have the skills that the companies need.
Businesses need tax rates to be addressed, too. In Prime Minister’s Question Time, it was disturbing to hear the Prime Minister criticise us for saying that corporation tax needs to be dealt with. He said that that was the wrong sort of problem to raise. Above all, there is the issue of regulation to be addressed. Every single business that we visit in our constituencies tells us that it is over-regulated, and that it is wrong.
We have heard some expert and well-qualified speeches. It is notable that we five Conservative Members who have spoken have all run our own businesses. We have gone through the pain; we know what it is like when a person sets up a business and feels that the world is against them, even though their motivation for going into business was that they had an idea and wanted to provide a service to the community or a business audience. They end up feeling like some sort of criminal if they do not get their VAT form in bang on time. The approach towards business does so much to stifle it. Many people would never have started their own business if they had known how difficult it would be.
My hon. Friend the Member for The Wrekin (Mark Pritchard) is right to tell us that regulation is not bad per se. Many regulations are good for business and for Britain. The problem is identifying and removing the ones that are not good and are counter-productive. He was right to say that we need to know the answer to the question of how many businesses have closed as a result of bad regulation.
My hon. Friend the Member for Wellingborough (Mr. Bone) said that he was rejected by the electorate on a number of occasions. That rejection meant that by the time he entered the House, he was a more expert, well-qualified MP than he would otherwise have been. We are lucky that he is here to bring that expertise to the House and to our considerations today. He talked about the sense of frustration that business has about bad regulation, and he did so with immense feeling and understanding, because he has been there himself, and has run businesses for 20 years.
My hon. Friend the Member for Beverley and Holderness (Mr. Stuart) rightly sounded sceptical about parts of the Bill; again, he has experienced the consequences of over-regulation first hand. He asked a whole range of sensible, practical questions—so much so that they almost amounted to a request to go on the Committee for the Bill. We will need such detailed analysis as the Bill goes through its stages.
My hon. Friend the Member for Stone (Mr. Cash), whom I am glad to see in his place, talked about the relationship with the European Communities Act 1972. Ministers talk about leading the way in cutting down administrative burdens, but one of the greatest frustrations for business is that a small directive from Brussels ends up as a long regulation that comes out of a Department.
If we want to tackle the culture of over-regulation, we need to start with Ministers. They need to say what European regulations and directives say and that they will not add anything to them. If that does not stand up, it will be the failing of the directive. We should not use directives as an opportunity to gold-plate and add on bits and pieces to allow officials, whom I know are well meaning, to tag on a little bit that they have been tucking away in a drawer, hoping for a suitable directive that they can latch it on to. Ministers have to be robust in rejecting that approach and saying that the directives that come from Brussels should be exactly that, and not become a vehicle into which more bits are added.
On the elements of the Bill itself, we owe a great debt of gratitude to Philip Hampton and Richard Macrory for their work, which has identified practical and important considerations. However, as we have heard, questions need to be answered today, or certainly in Committee. The talk about the local better regulation office sounds alarm bells. It may be well intentioned, but we have seen too often that what starts as a well-intentioned initiative grows out of control. We can imagine that in a little while the Minister will say, “Well, the local better regulation office is working so well that we will have regional better regulation offices as well. Then, to make sure that it all comes together, we will have a national better regulation office.” An entire new arm of bureaucracy and administration would be set up. That is not the way in which we should be going.
We also want to know how the new body will prevent over-zealous implementation. The businesses in our constituencies often tell us that the problem is not regulation, but how it is interpreted by people from health and safety and Government Departments. A company in my constituency told me of its experience. Every year, it took on people from the local community college for work experience. A couple of years ago, health and safety representatives told it that it could not do that any more because it was a dangerous environment in which to work.
I am talking about a retail establishment. First, its management were told that the young people could trip up and down the step in the shop as they were carrying things around. Secondly, there was—even more dangerously—a till in the establishment. I did not think that unusual in a shop. However, if a young person was bending over when the till opened, he could be hit on the head. The health and safety representatives refused to allow the shop to offer work placements to people at school. That was not down to regulation; no regulation anywhere in this country says that children should not work near tills. It was a case of an over-zealous inspector, who damaged both that business and the aspirations of young people.
My hon. Friend the Member for Wellingborough talked about inspection for the sake of inspection. The underlying problem is that as a society we are becoming too risk-averse—we are trying to eliminate the downside and risk. Risk, however, is part of an entrepreneurial, successful society, and if we do not encourage people to take sensible, calculated risks, we will damage our opportunities to deliver the growth and economic success that we want.
Part 2 of the Bill relates to the primary authority. We need to know from the Minister how it will ensure fairness for small businesses and a level playing field with big businesses, which can choose where they are regulated. Take the example of two neighbouring shops—one is large and regulated remotely, perhaps hundreds of miles away, and the other is regulated locally. How can they both be on a level playing field, given that they are accountable to different primary authorities? We need greater clarity on that.
We also want clarity on part 3, which is about civil sanctions. We welcome measures that track all rogue traders. We know the problems, headaches and pain that such traders cause our constituents and we want tougher action against them. However, as a result of the Bill, 27 different regulators—an awful lot—will be given the powers to impose civil sanctions. How will we stop the tendency for them to go for easy pickings and focus on smaller businesses that will not appeal? The regulators may use the full force of their powers against such smaller businesses, but not against the more serious offenders.
The comments of the noble Lord Lyell of Markyate have been cited. He said that the regulators would be the investigator, prosecutor, judge, jury and sentencer. In British law, we are not familiar with that concept, which represents a completely different approach from that of the legal system that we have had in the past. Perhaps the Minister can tell us whether there has been a precedent. The issue causes understandable concern.
In other areas, are we not used to regulators having those various powers, which are not necessarily always used inappropriately? I am thinking about the Financial Services Authority, which has the power to do all the things that the hon. Gentleman has mentioned. Is he saying that he does not think that such powers are appropriate in any circumstances?
They certainly can be appropriate, but we need clarity about how the system will work. At the moment, that area of the Bill is opaque; it is establishing a principle, and the devil will be in the detail. We can have effective regulators, which have a light touch and achieve what they seek to do; alternatively, we can have those that go for the easy pickings, are intrusive and do not get it right. One of the things that we have to explore in Committee is how to get things right. If we do not, the credibility of the Bill may be undermined.
In the discussions on the Lisbon treaty and the Legislative and Regulatory Reform Bill, which became a 2006 Act, proposals in my name were put forward that asserted the supremacy of Parliament so that, beyond gold-plating, we could ensure that the legislation was consistent with the will of Parliament and the people of this country. Conservative Front Benchers have said that we need constitutional safeguards. I do not want to take my hon. Friend too far down that route, but does he accept that we need to insist on that?
I was both listening carefully to my hon. Friend and watching Mr. Deputy Speaker during his intervention. My hon. Friend is absolutely right that we have to listen carefully and take note. He is a doughty campaigner on such matters, and we should jealously protect and guard the primacy of this Parliament.
On civil sanctions, the Minister needs to tell us how he would answer the CBI’s request for there to be an independent review before a penalty is issued. Business needs to know that the process will be fair, and that if it feels that it is being treated unfairly, it will have a chance to have its side heard—and not by the person who assessed it in the first place, or who would judge or pass sentence on it.
There is a range of such issues, and there are more detailed questions as well. For example, how will the process work? Will there be cautions before fines are imposed? How many cautions will there be? What sort of offences will be covered—minor or more serious infringements? When our constituents get a penalty notice because they stayed a couple of minutes too long at a parking meter, that causes profound aggravation—they see it as an enormous extension of the state and an intrusion into their lives. Although sanctions can play an important part in regulation, we need to know that they are being used properly.
There is a range of questions about the Bill. It is not a bad Bill; it has a lot of good elements and is moving in the right direction. However, the devil will be in the detail. We are not opposing it on Second Reading, but we will be studying it extremely carefully in Committee, because significant changes need to be made. We will be addressing those issues in Committee to decide whether we can support it further.
As my hon. Friend the Minister made clear in his opening remarks, the Bill is motivated by the work of Philip Hampton, who, in his 2005 report, “Reducing Administrative Burdens”, identified two major and costly problems with the enforcement of regulation. He found, first, inconsistencies in the way in which businesses were treated by local authority regulatory services and, secondly, inflexibility in an enforcement regime that gives regulators the choice of pursuing offenders only through costly criminal prosecution or informal advice regardless of the scale of the offence, preventing a proportionate response. The Bill will deal with both those issues and fundamentally improve the way in which regulation is enforced.
As my hon. Friend also made clear, we have listened to concerns raised in the consultation process that we have undertaken and in the other House, and we have amended the Bill.
If the hon. Lady will forgive me, I will come to her point as I make my way through my remarks.
I agree with the hon. Member for Wealden (Charles Hendry) that this has been a particularly interesting debate. We heard a series of important contributions, not least from the hon. Member for Stone (Mr. Cash), from my hon. Friends the Members for Ellesmere Port and Neston (Andrew Miller), for Stafford (Mr. Kidney), for Amber Valley (Judy Mallaber), and for East Lothian (Anne Moffat), and from the hon. Members for The Wrekin (Mark Pritchard), for Beverley and Holderness (Mr. Stuart) and for Wellingborough (Mr. Bone), as well as from the hon. Members for Brent, East (Sarah Teather) and for Huntingdon (Mr. Djanogly).
The hon. Member for Stone was, characteristically, first to intervene from the Back Benches. As I have said on other occasions, I have long thought that he deserved greater recognition from within his own party, and perhaps a spell on the Front Bench would suit him well.
All I would say to the hon. Gentleman’s Front-Bench colleagues is that it is perhaps time for him to come back to their Front Bench. I have seen reference to other more mature Conservative Members returning, so perhaps it is time for him to do so.
I do not say that because I agree with the hon. Gentleman’s points about Europe. I would continue to encourage him to reflect on and change his position on Europe. Perhaps in so doing, he might like to talk to the hon. Member for Wellingborough about his experience in the travel industry, where the timeshare directive has helped to make a real difference for British and for other consumers. I realise that I made a small error by not inviting the hon. Member for Wellingborough to the EU consumers conference that my Department recently held, at which we considered how we can further improve the regulation that comes from Europe to help British and other European consumers to benefit from better consumer law, and, crucially, to assist the operation of British businesses’ services to their consumers.
I am sure that the Minister would not want to give the impression that I thought that anything good was coming out of the European Union. The European regulations that affect the travel industry are so confusing that it has no idea how to interpret them. As a small travel agent, I had no idea, and most travel agents just ignored them. The Minister should not give the impression that these regulations from Europe are clear and helpful.
I am sorry to hear the hon. Gentleman’s intervention, because business has largely welcomed, for example, the unfair commercial practices directive. We have just put that into legislation in the form of the Consumer Protection from Unfair Trading Regulations 2007, which come into force on Monday, which his own colleagues endorsed and supported, and which will allow British consumers to see trading standards authorities taking tougher action against those who perpetrate scams and all sorts of other activities by rogue traders. I recognise and accept that we need to continue to engage with the European Commission and other member states to continue to see improvements in the quality of EU regulation. Equally, however, let me challenge the hon. Gentleman by saying that he, too, should recognise that many of the directives that come from Brussels are supported by British business, are welcomed by British consumers and make a genuine difference.
I am interested in what the Minister is saying. The Timeshare Act 1992 is one of the 200 enactments referred to in schedule 3. Clause 4 refers to enactments under section 2 of the European Communities Act 1972 and to others that overlap with those and come from European directives. It also says that the Secretary of State may by order remove any enactment from that schedule and remove any matter from subsection (3) of the clause. Yes, we want to reduce unnecessary burdens and make things more transparent and accountable, but the Government are woefully at fault, because although they want to achieve certain things they will not bring themselves to the point of doing so. We have to add, “notwithstanding the European Communities Act”, and I will table an amendment to that effect.
I am sure that my hon. Friend the Minister will welcome the chance to continue to engage in debate with the hon. Gentleman in that area. I should point out to him that the unfair commercial practices directive and the consumer protection regulations have allowed us to deregulate a whole series of areas of legislation, to simplify the position for British business and to ensure that trading standards and other authorities can take tougher action in support of British consumers.
My hon. Friend the Member for Ellesmere Port and Neston rightly asked whether the Bill will make a significant difference to trading standards and local authorities. It will introduce a series of additional powers to help them to take appropriate action to ensure that consumers in the UK get a good deal, not least because, as my hon. Friend the Member for Stafford said, we face problems with rogue traders operating in our constituencies across the UK. They bring down the reputation of legitimate businesses and unfairly undercut them, and many put at risk British consumers, particularly those who are vulnerable. We need to ensure that trading standards authorities have the appropriate powers, and the Bill will help in that regard. My hon. Friend the Member for East Lothian raised a further series of points that I shall come to later.
I was interested by the observations of the hon. Member for The Wrekin. In previous lives, he and I served on Harrow council together. He mentioned the 80 per cent. of enforcement action that is taken by local authorities. Perhaps when he comes to reflect on this debate he will recognise the sad state into which Harrow council has fallen under Conservative control. According to the Audit Commission recently, it is the worst-run authority; it is run by Conservatives and run into the ground. I suspect that people in my constituency will increasingly see the words “Conservative-run” and “well-run council” as oxymoronic.
I beg your pardon, Madam Deputy Speaker; I was provoked.
The hon. Member for Wellingborough challenged me on the Floor of the House to accept a bet that the LBRO would not double its budget and its staff by the end of its first year in office. I am a Methodist and not usually up for a gamble, but I am willing to accept his bet. Madam Deputy Speaker is here to officiate. The hon. Gentleman suggested £5; I would be willing to raise it to £10 if he is willing to accept the—
The hon. Member for Wellingborough also mentioned the success of the two businesses that he was able to set up and run, and the fact that because of the good sense—if he will forgive my saying so—of the electorate in the constituencies in which he stood, he was able to see those businesses develop under a successful Labour Government. He is no doubt personally better off as a result.
I accept the point that my hon. Friend makes, and no doubt he is seeing the benefit in employment and increased income for his constituents, which I and, I suspect, Opposition Members—if they were willing to be completely transparent in this debate—are also seeing in our constituencies. One pays tribute to the ingenuity and talent of business people throughout the UK who flourish under the economic conditions that my right hon. Friends the Chancellor and the Prime Minister have helped to ensure are in place.
The hon. Member for Wellingborough spoke about local authorities being far less efficient than small businesses. If he was referring to the experience of small businesses in my constituency suffering under the yoke of Conservative-run Harrow council, I would have sympathy for his comments.
I was trying to make a serious point about the impact assessment. I could not see why the local authority costs were an estimated £13.6 million for the year while the saving was only £14.2 million for local authorities. There seems to be something wrong there, perhaps with the impact assessment. It does not seem to ring true, does it?
I will come to the hon. Gentleman’s points about the impact assessment.
The hon. Member for Brent, East made a series of points, some of which I am sure she will want to raise in Committee, but one or two of which I will refer to in this debate. The hon. Members for Huntingdon and for Wealden made a series of important points about the Bill, and I hope that I will be able to address some of their concerns. No doubt its passage through Committee will provide further reassurance to them. I have to say, however, that when they veered away from the specifics of the Bill, they made a series of intemperate and inaccurate comments about the current business climate. The business community will view with considerable scepticism lectures from them and other Conservative Members about the problems that it faces, when their party was responsible for two massive recessions in the 1980s and 1990s, in which business after business went to the wall, job after job was lost and many business men and women lost their homes and considerable amounts of money as a result. They might think that the business community has forgotten what it was like to operate under a Conservative Government—I think that they will be sadly mistaken come the next election.
I shall go on to address some of the other issues concerning the amount of deregulation that has occurred under this Government. Perhaps I should just reflect on a series of measures that we have introduced to make it easier for businesses to operate—for example, through the way in which employment law documentation has to be put together. New approaches were introduced that chief executives from the business world welcomed.
The Companies Act 2006 introduced a series of measures to make it easier for businesses to operate. Some 500,000 to 750,000 private companies will no longer need to hold an annual general meeting as part of a wide series of changes to company decision-making processes, and £45 million of annual savings will be delivered as a result. Moreover, 60,000 private companies will no longer need to appoint a company secretary, saving each of them considerable sums. Further examples of the approach that the Government have taken to help businesses include helping them to communicate electronically. Independent estimates show that that change could save larger companies up to £400,000 a year, on a single mail-out. Those are just a few examples of the difference we have made to the regulatory burden.
Perhaps I could encourage the hon. Gentleman to talk to the business community, which welcomed the move. He suggests some scepticism about the benefits of that measure—let him talk to the business community, which actively supports it. While the hon. Gentleman is talking to the business community about that measure, he might like to ask about the revelation from my hon. Friend the Member for Amber Valley that Conservative Members have not been diligent about turning up to discussions in the Regulatory Reform Committee. [Interruption.] I welcome the attendance of the hon. Member for Beverley and Holderness in this debate—I hope that he will take up the issue of poor attendance on that Committee with those on his Front Bench.
The business community has made a series of supportive remarks about the Bill. The British Retail Consortium, for example, strongly supported the establishment of the LBRO, saying that it thought it vital that the LBRO should have full and effective powers right from the start. The consortium saw one of the office’s key roles as bringing reluctant authorities up to standard. The national policy chairman of the Federation of Small Businesses, Mr. John Walker, made it clear that ensuring a clear and consistently fair system throughout all local authorities is a “must have” for the small business sector. He went on to say that the anticipated reduction in cost to businesses means that this is a positive development and welcomed the creation of this new body. The Institute of Directors, too, welcomed the proposition that a wider range of penalties would mean less use of criminal sanctions, and less time and money being spent on court procedures. The Federation of Small Businesses said that it supported the use of alternative sanctions rather than the use of criminal prosecutions, which it thought—as we do—should be reserved for only the most egregious offenders and offences.
Several hon. Members expressed concern about what the LBRO would do for smaller businesses. Its objective is to promote better regulation for all businesses, regardless of size. We believe that all its functions under part 1 will help to lighten the burden of regulation on small businesses. For example, where small firms operate in more than one local authority area, they will have access to the primary authority scheme that is enshrined in part 2 of the Bill. For instance, a car dealership operating across several councils or small businesses that are based on internet sales could benefit from the scheme. I suspect that is why, during consultation, small businesses were concerned to ensure that the primary authority scheme did not divert resources away from their support towards bigger national firms.
I will not give way to the hon. Gentleman; he has not been here since the beginning of the debate.
As the Macrory report made clear, we decided to introduce additional sanctions. He found that, in the past, UK regulators have relied too much on criminal prosecution as a means of tackling breaches of regulation. He identified a series of weaknesses in the current system. For example, he noted that criminal prosecution may occasionally be a disproportionate response when there is no deliberate intent or wilfulness to break the law. He also identified evidence of a compliance deficit, whereby regulators leave many breaches unpunished because they have a choice only between criminal prosecution and informal advice to tackle regulatory non-compliance.
Macrory also made clear his view that the deterrent was occasionally insufficient. He noted the criticism that the current system provides insufficient tools, with the courts handing down fines that often do not reflect the seriousness of the offence or the financial benefit gained through wilful non-compliance with the law. He also noted that prosecutions take time and money. Heavy reliance on formal criminal prosecutions makes resolving such cases a costly and time-consuming exercise for business and regulators. In many instances, given regulators’ limited resources, the cost or expense of bringing criminal prosecutions deters the regulator from taking any action in all but the most clear-cut cases.
Civil sanctions will allow regulators to act in a more proportionate and targeted way, thus helping to close the compliance deficit and delivering considerable savings to both businesses and regulators.
The hon. Member for Brent, East asked about restorative justice. Part 3 already includes a significant element of restorative justice through enabling regulators to impose restoration notices and accept undertakings offered on their business to rectify any harm caused by its non-compliance. The Better Regulation Executive is working in partnership with regulators to explore how they may develop restorative justice schemes locally.
The hon. Member for Beverley and Holderness expressed concern that under the Bill regulators would act as judge, jury and sentencer. Opposition Front Benchers picked up on that, as did Lord Lyell in the other place. The Bill allows many regulators to receive significant new powers and also includes important safeguards. First, the regulator will need to be satisfied beyond reasonable doubt that an offence has been committed—that is the criminal standard of proof. Secondly, the person whom the regulator suspects of committing the offence will be able to make representations to the regulator before a fixed monetary penalty or a discretionary requirement can be imposed. Thirdly, and perhaps most important, the Bill provides, as I made clear in my intervention, a right of appeal to an independent, impartial and expert tribunal.
We firmly believe that the provisions in part 3 are fully compatible with our obligations under the European convention on human rights.
We are always happy to discuss reasoned cases that are put to us. I know that my hon. Friend the Minister will enter the Committee stage in that spirit.
My hon. Friend the Member for Ellesmere Port and Neston mentioned variable monetary penalties. Perhaps I should give an example of the potential benefit of the provision. If the security industry decided that it wished to use the powers in the Bill for wheel-clamping, the new sanctions could be used to tackle unlicensed wheel clampers or organisations that use wheel clampers directly. A fixed monetary penalty could be imposed for failure to hold a licence or a variable monetary penalty to remove profit made by unlicensed wheel clampers. I suspect that many hon. Members who have received complaints from constituents about the way in which wheel clampers operate will welcome that.
The Bill will promote better consistency of treatment for business and provide a more effective and flexible range of responses for regulators on the ground, with a view to promoting compliance and minimising the unnecessary burdens associated with regulation in practice. The Bill will modernise the way we enforce regulations, with benefits for consumers, businesses, and regulators. I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
regulatory enforcement and sanctions Bill [lords] (Programme)
Motion made, and Question put forthwith, pursuant to Standing Order No. 83A (Programme motions),
That the following provisions shall apply to the Regulatory Enforcement and Sanctions Bill [Lords]:
1. The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 1st July 2008.
3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
4. Proceedings on consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on consideration and Third Reading.
7. Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—[Alison Seabeck.]
Question agreed to.
REGULATORY ENFORCEMENT AND SANCTIONS BILL [LORDS] [MONEY]:
Queen’s recommendation having been signified—
Motion made, and Question put forthwith, pursuant to Standing Order No. 52 (Money resolutions and ways and means resolutions in connections with Bills),
That, for the purposes of any Act resulting from the Regulatory Enforcement and Sanctions Bill [Lords], it is expedient to authorise—
(1) the payment out of money provided by Parliament of any expenses of the Secretary of State attributable to the Act; and
(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—[Alison Seabeck.]
Question agreed to.
REGULATORY ENFORCEMENT AND SANCTIONS BILL [LORDS] [WAYS AND MEANS]
Motion made, and Question put forthwith, pursuant to Standing Order No. 52 (Money resolutions and ways and means resolutions in connection with Bills),
That, for the purposes of any Act resulting from the Regulatory Enforcement and Sanctions Bill [Lords] it is expedient to authorise—
(1) the making of provision under the Act in relation to income tax, corporation tax, capital gains tax, stamp duty or stamp duty reserve tax in connection with any transfer under the Act of any property, rights or liabilities of the Local Better Regulation Office, and
(2) the payment of sums into the Consolidated Fund.—[Alison Seabeck.]
Question agreed to.